Copper: Alternative Demand to Offset China Weakness?

After surging higher last week, Copper prices fell sharply lower this week as the US Federal Reserve raised rates for the second time this year. Citing strong economic growth and labour market conditions, the Fed raised rates a further 0.25% to take the federal funds rate to 1% – 1.25%, its highest level since 2008. The red metal was shunted sharply lower in reaction to the news as an increase in Dollar strength lowers the price of Copper.

Ahead of the release Copper has been enjoying some resurgent strength linked to reports forecasting a significant increase in demand over the year linked to alternative uses for the metal. Electric Vehicles, which use copper in their batteries, are expected to see a surge in demand over the year – fuelling a similar increase in copper demand.

Copper is also being used in industries such as fish farming, with salmon cages now being lined with copper, while some firms are also looking into copper’s antibacterial qualities for use in hospitals and special socks. This new area of demand is expected to compensate for traditional Chinese industrial demand which many feel will now start to taper off.

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The sell-off in copper is likely frustrating for many traders as it keeps the current range intact. Price has been stuck in the heavily congested zone between 2.75 and 2.45 since December of last year, and this latest pullback means the range is likely to continue for now. The key levels in copper remain untouched for now: to the topside, key resistance is the long-term bearish trend line from 2011 highs and 2015, which sit roughly on top of each other. To the downside, first key support is the December 2016 low with deeper support at the mid-2016 highs.

Iron Ore: Deutsche Bank Looking For Below $50

Fresh weakness in Chinese steel prices, alongside a further rate hike in the US, has seen iron ore plummeting once again this week with the benchmark price now at levels not seen since June last year.  In a research note released this week, Deutsche Bank’s commodities team forecast that the decline will continue and that the metal will end the year below $50 per ton. The bank cites three reasons for their call:

1 – Credit conditions in China have tightened and will further weaken demand

2 – Scrap metal that was being used by illegal furnaces is now displacing iron ore units

3 – Supply has been responding to the higher prices with shipments increasing following a seasonally weak Q1

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This latest slide in Iron ore has taken price down below the mid-2016 $56 level support which should now act as resistance on a retest en-route to a challenge of the key $50 psychological level.

Platinum: Outlook Remains Bearish

The price of the precious metal fell over the week, tracking the move sin Gold, as the Fed raised US interest rates for the second time this year. The decline is in sync with the longer-term move in the metal which is now down nearly 50% from the highs of August 2011. The main driver of this decline has been a huge fall in demand.

The rise of electric vehicles has reduced the traditional demand for platinum in the auto industry, and the forecast for the metal is bleak as electric vehicles are expected to continue to gain market share. Indeed, the World Platinum Investment Council projects auto industry demand for the metal to fall to 3.4 million ounces in 2017, from 3.435 million ounces in 2016.

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Focus remains on the downside with the local structural support at 892.70s, the key level to watch. Price had been testing this level since December last year, and a break here will open the way for a challenge of the 2016 low around 810. Resistance is found at the bearish trend line from 2013 highs with further resistance above at the long term bearish trend line from the 2011 highs.